Missouri Tax on Capital Gains

Beginning with the 2025 tax year, Missouri has made a major change that benefits individual investors and property owners: the state no longer taxes capital gains for individual filers.

In practical terms, this means Missouri residents can deduct 100% of their capital gains when calculating their Missouri adjusted gross income (MAGI), even though those same gains are still taxable at the federal level.

What This Change Means for Individuals

100% Capital Gains Deduction at the State Level

For all tax years starting January 1, 2025, individual Missouri taxpayers are not subject to Missouri state income tax on profits from the sale of capital assets, including:

• Stocks and bonds
• Mutual funds and ETFs
• Real estate and investment property
• Cryptocurrency and digital assets
• Other taxable investments

When preparing a Missouri return, the full amount of capital gains reported on the federal return is subtracted from Missouri income, effectively removing those gains from state taxation.

This applies to both short-term and long-term capital gains, which is especially notable because many states still tax short-term gains at higher rates.

Federal Capital Gains Taxes Still Apply

It is important to understand that Missouri’s exemption applies only to state income tax.

Taxpayers must still pay federal capital gains taxes, including:

• Long-term capital gains taxed at 0%, 15%, or 20%, depending on income and filing status
• Short-term capital gains, taxed as ordinary income at federal rates of 10% to 37%

High-income taxpayers may also owe the 3.8% Net Investment Income Tax (NIIT) at the federal level.

Corporations Are Not Yet Eligible

This new deduction currently applies only to individual taxpayers.

• Corporations cannot yet deduct capital gains for Missouri tax purposes.
• Missouri law allows corporate capital gains deductions only after the state’s top individual income tax rate falls to 4.5% or lower.
• For the 2025 tax year, Missouri’s top individual rate is 4.7%, so the corporate exemption has not yet taken effect.

This means business owners operating through C-corporations should continue to plan for Missouri capital gains taxes until the threshold is reached.

Covered Assets and Key Exclusions

Covered Gains

• Short-term gains (assets held one year or less)
• Long-term gains (assets held more than one year)
• Gains from taxable investment and property sales

Excluded Accounts

• Retirement accounts such as IRAs, 401(k)s, and Roth accounts are not affected
• Withdrawals from these accounts are taxed as ordinary income, not capital gains, under both federal and Missouri law

Why This Is a Big Deal

Missouri now joins a small group of states that effectively offer a zero state tax rate on capital gains for individuals.

For investors, retirees selling property, and taxpayers realizing large one-time gains, this can result in substantial state tax savings.

Filing Tip: Use Electronic Filing

Because this deduction requires correctly subtracting federal capital gains on the Missouri return, electronic filing is strongly recommended.

Using reputable tax software or e-filing through a professional preparer helps ensure:

• Capital gains are properly removed from Missouri income
• Federal and state returns remain consistent
• Math errors and missed deductions are avoided
• Faster processing and quicker confirmation from the state

E-filing also reduces delays that can occur when large capital gains appear on a federal return but are excluded on the state return.